As Asian economies tumbled in the past two years, experts predicted that Australia -- which exports vast quantities of commodities to Asia and depends on tourists from the region -- would soon face hard times. But that hasn't happened.

Australia's economy expanded 5.1 percent last year -- outdistancing even the U.S.'s 3.9 percent growth. Australia became the tortoise which overtook the Asian hare, a lesson which hasn't gone unnoticed among Asian leaders.

How did it happen?

• Australia's central bank had begun cutting interest rates for domestic reasons a year before the Asian crisis began in July of 1997.

• Having weathered a banking crisis in the 1980s, its banks had been rebuilt by the mid-1990s and were strong and sound.

• Australia's dollar was allowed to float freely, so it had no rigid exchange rate to defend -- unlike its unfortunate neighbors.

• Australian exporters -- whom deregulation and privatization had forced to become more nimble -- diverted their wares from sinking Asian economies to healthier ones elsewhere.

All told, Australia's sales of goods to Asia, including Japan, slid 6 percent in value last year. But exports to the U.S. and Europe climbed 34 percent and 42 percent, respectively.

Australia's reforms prior to the Asian debacle included removing protectionist trade barriers, and moving from a rigid national wage-setting structure toward a productivity-based system of labor agreements reached at individual companies. Air travel, electricity and telecommunications were opened up to competition.

Experts contend that such changes allowed Australia the flexibility to deal effectively with the Asian challenge. Why, they ask, didn't Asia pursue similar policies and save itself a lot of pain?

Source: S. Karene Witcher and David Wessel, "Strong Banking System Helps Australia Prosper as Neighbors Struggle," Wall Street Journal, April 28, 1999.